MTV Gets "Real" As Microsoft Gets Tuned Out

When Viacom's MTV unveiled its new "Urge," online digital music destination at the big Consumer Electronics Showlast year, it had all the earmarks of a major initiative. Justin Timberlake joined Van Toffler on stage during Bill Gates' keynote to unveil the service which would ultimately be tied to the then-upcoming Zune media player from Microsoft .

But flash forward to present-day, where Urge has done nothing to unseat Apple's iTunes, and the Zune, is, well, missing in action. So Viacom forges a deal with RealNetworks and its Rhapsody online digital subscription service instead, abandoing Microsoft, yet continuing what seems to be developing as a major digital initiative by the company.

And that's the much bigger story here.

First, some details on MTV and Rhapsody. S&P's Tuna Amobi says Viacom was "left with very little choice" as two "somewhat fringe players try to leverage their positions" to take on Apple. The music landscape continues to change, and with change comes opportunity, so who knows: Consumers might be looking for an alternative and a relationship like Real and Viacom brings a lot of cool entertainment bells and whistles to the party. And heaven only knows that Hollywood is certainly looking for online alternatives to the iPod/iTunes juggernaut.

Real's Rob Glaser doesn't care about juggernauts or formats or any of that. He just wants everyone using his media player and his software across any format and any device.

"Google's famous for search," Glaser tells me. "Microsoft is famous for the operating system. Apple obviously with great consumer devices, does a great job. But video and audio is the center of our company. It's what we started with 12 years ago when we first brought out RealAudio. So we see tons of opportunity to come out with great products and if we keep doing that, we'll get our share of the benefits."

So the deal makes perfect sense for Real and could be a nice arrangement. Yet, for Viacom, the stakes are much bigger, and a deal like this one far more important.

"It was rather of surprising for us that Urge didn't gain the kind of traction that we thought it would gain, given MTV's huge and very attractive demographic," says Amobi. But when Microsoft went in another direction with online entertainment, and reduced emphasis and resources on Zune, "this was really kind of a forced situation on (Viacom.)"

Today's news signals yet another major step into online entertainment for Viacom. The company got off to a bumpy start when it lost mspace.com to Fox, which ultimately led to then Viacom CEO Tom Freston losing his job. "Viacom seems like it's been somewhat dragging its feet in its overall digital strategy," says Amobi.

But now, Viacom can't seem to move fast enough, announcing just this week plans to spend $500 million over the next year snapping up even more video games makers, after spending about that much over the last year, with a huge emphasis on online and web-based entertainment. MTV has built upon the success launched by xFire, GameTrailers, NeoPets, Nicktropolis. There was last year's $200 million purchase of Atom Entertainment. The deal with Harmonix, which now puts the hugely successful "Guitar Hero" gaming franchise under the Viacom umbrella.

ComScore Media Metrix says 42 million unique visitors spent time on MTV's game site in June, a 20% jump from January. MTVN has also signed casual gaming deals with Verizon and Nokia. The timing of today's Real deal is also important since it comes just a few weeks before MTV's big Video Music Awards where you'll see this relationship get plenty of play during the broadcast.

It's a sweet deal for both companies, yet probably won't do all that much in the near-term to unseat Apple's dominance. But this online digital entertainment marathon is still only in its first mile. And the race is a lot bigger than a competition against just Apple Inc.